CoreData was commissioned to help FBAA gain a deeper understanding of the potential implications of reducing the mortgage serviceability buffer rate from 3.0% to 2.5%.

The serviceability buffer rate in Australia is a regulatory measure set by the Australian Prudential Regulation Authority (APRA) to ensure that borrowers can afford home loan repayments even if interest rates rise. Over the past decade, APRA has adjusted this buffer in response to changing economic conditions.

The serviceability buffer was originally introduced by APRA as a requirement for lenders to assess home loan applications using the higher of either a floor rate of 7% or a buffer of 2% above the loan’s interest rate. In July 2019, the floor rate of 7% was removed and a 2.5% buffer rate was prescribed. This was raised to 3.0% during the pandemic, in 2021. With proposals from the Coalition to require the regulator to reduce the buffer back to 2.5%, this research explores the implications, assessing how many more people may be able to secure a home loan under a reduced rate.

To explore this, CoreData has modelled the effects of the 0.5% reduction using population data from the Australian Bureau of Statistics and standard interest rate serviceability calculations used by major lenders